S. Texas companies to see opportunities with Mexican shale

SAN ANTONIO — As busy as South Texas already is with the Eagle Ford Shale drilling, the volume of shipments are bound to increase further as Mexico opens its shale region in its northern states to foreign drillers.

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Additional shipments will provide opportunities for small companies already active in the Eagle Ford.

The geological formation known as the Eagle Ford curves south of San Antonio, but it does not stop at the Rio Grande. It continues into Mexico. So far, Mexico's government-owned energy monopoly, Petróleos Mexicanos, known as Pemex, has not deployed on a wide scale the fracturing technology to exploit its shale fields.

Mexican law prevented foreign drillers, producers and refiners from operating in Mexico until last December, when the ban on foreign participation ended. Mexico wants foreign energy companies to bring their technologies for shale and deep-water drilling.

Word coming out of Mexico is that small companies likely will dominate Mexico's northern shale area.

“It's not the large companies that have the agility and the cost structure to exploit shale gas. It's an area for new players,” said Mario Gabriel Budebo, a Pemex Gas and Basic Petrochemicals director, during a recent Bloomberg Mexico economic summit.

Pemex intends to lure as much as $1 trillion in energy investment during the next decade for Mexico's proven oil reserves, added Pemex CEO Emilio Lozoya, quoted in a Bloomberg article.

Some investments will come from China and elsewhere in Asia, according to sources quoted by Bloomberg, but energy companies active in South Texas have an obvious advantage from their proximity to northern Mexico's shale area.

Mexico has an estimated 681 trillion cubic feet of technically recoverable shale gas resources, one of the largest reserves in the world, according to the U.S. Energy Information Administration.

One company already thinking about servicing inbound and outbound shipments to northern Mexico is Live Oak Railroad, which has its corporate office in San Antonio and its industrial park near Three Rivers.

Live Oak Railroad operates a rail spur off of Union Pacific Corp.'s San Antonio-to-Corpus Christi tracks. Live Oak Railroad's industrial park of about 300 acres includes tenants that provide a variety of services, mainly rail-pipeline-truck logistics, to oil and gas companies drilling in the South Texas shale.

Some of the industrial park tenants are owned and operated by San Antonio-based Howard Energy Partners, which also owns part of Live Oak Railroad.

“There's a lot of opportunity in Mexico,” said José “Hoss” Alfonsín, a Live Oak Railroad sales and marketing executive.

“While the oil majors will be front and center in developing Mexico's offshore resources, few of them possess the requisite shale expertise. Instead, shale expertise is to be found almost entirely within the U.S.' thousands of small and midsized firms,” Alfonsín said, adding:

“The challenge, then, for Mexico will be to find ways to entice U.S. shale experts to enter new, politically unfamiliar territory with unknown policy risks while abundant shale territories remain in the United States.”

Alfonsín said Live Oak Railroad foresees large volumes of frack sand shipments into northern Mexico, along with oil and gas shipments outbound from Mexico to Texas Gulf refineries and U.S. markets.

The hope is that Live Oak Railroad and its tenants can provide the rail- and pipeline-loading services to support the shipments, along with other services, such as stabilizing of liquids for use and locating rail cars as needed for shippers.

Already, Mexico has imported U.S. natural gas to power its factories. Mexico also exported some of its natural gas for shipments to the U.S. Northeast during the long, bitter winter, Alfonsín said.

Volumes of liquefied natural gas, which Live Oak Railroad handles, already are rising because drilling sites are switching to LNG instead of diesel to power drilling rigs, Alfonsín added.

Producers have begun negotiations with Pemex for shale drilling in northern Mexico, Alfonsín said. “In the next six months, we'll see staging of operations,” he said.

Operations like Live Oak Railroad's dot the South Texas landscape. All of them could have similar opportunities, whether it's in six months or later.